8 Ways to Repatriate Your Capital and Profits Back to Your Home Country
By: Noel C Ducusin
This article is by request of some readers from Osaka, Japan. The content here applies not just to those of you that have parent companies in Japan but also to any other country. Many of you may be under the impression that the only way to repatriate your profits from the Philippines back to your home country is via the usual method where goods or services are sold by your parent company to your local subsidiary for distribution to local customers. In this method, the customer remits payment to your local subsidiary and then your local subsidiary pays your offshore invoice and sends the funds via offshore wire transfer to your parent company. This is the most straightforward and common way. However, this is far from the only way. There are at least seven (7) more ways to do so each with its own advantages depending on your circumstances. We will discuss those seven (7) other ways below.
1.. Dividends
This method assumes that you already have a local company in the Philippines. The advantage of this method is that you can use your local corporation to expense out a lot of costs so that only the remaining amount of profits will be subjected to the offshore tax.
In addition, the tax on dividends is generally lower compared to the tax on a straight sale from offshore. You will need to carefully run the numbers with both your local and offshore accounting teams to see how best to achieve tax efficiencies.
2. Intercompany Loans
There are two ways of funding your local company either by an equity investment through the purchase of its shares or by a loan. The use of a loan has the advantage of being able to bring back your capital right away through regular loan repayments, as well as the advantage of booking this as an expense for your local company to lower its total income taxes. The Philippines adheres to International financial reporting standards and therefore any loan transaction has to be compliant with the "arm's length" principle. Thus, an interest rate must be charged and this can constitute part of your profits that will be remitted back to the parent company.
The same principle here applies to any allowances given to the local company that must be paid back.
3. Technical and Advisory Support
More often than not, your local company will be starting from scratch and will need plenty of technical and advisory support from your parent company. Instead of providing this free of charge, standard consulting fees can apply. Again, this has the additional advantage that your local company will be able to expense out these consulting fees to lower rates of taxable income. This also allows for your capital to be repatriated back on a regular basis similar to the use of loans discussed above.
Just as in the case of loans, the consulting engagement can be done on an arm's length basis whereby fees representative of the going rate will be charged inclusive of your profit margin.
4. Joint Administration Support
This method is similar to the technical advisory mentioned above except that it refers to joint administration such as human resource management, finance, and government compliance support across all companies.
Again, instead of providing the service for free, this support can be expensed out in the same manner as the technical advisory abovementioned. Since this is just a shared expense, no profit margin applies here. Nonetheless, initial capital can still be repatriated back to the parent company on a regular basis.
5. Management Fees
More often than not, your new local company still doesn't have trained personnel or is still in the process of hiring trained personnel. Sometimes, though you already have the necessary personnel, further training for them is required for your specific product or industry.
In this instance, management fees can be charged by your parent company. Again, these can be expensed out in the same way as technical advisory fees and can be inclusive to the usual profit margin under the same arm's length International financial reporting standards rule.
6. Research and Development Expenses
Oftentimes your local company benefits from research and development done by your parent company. It's all but natural that the local company should share in the expenses since it is benefiting from it. Thus, a certain portion of global research and development expenses can be expensed out by the local company to the same effect to reduce income taxes and a reasonable profit margin likewise be remitted back. Since this is just a shared expense, no profit margin applies here as well and the same situation as in the case of joint administration support above applies.
7. Intellectual Property Royalties
Similarly, your local company may benefit from intellectual property rights possessed by your parent company. The local company should therefore make allowances and payments for the use of these intellectual property rights on an arm's length basis. Thus, similar to technical advisory and management fees, this line item can be expensed out and a reasonable profit margin can be applied for remittance back to the parent company on a one-time basis or periodic basis as the case may be.
The above is just a basic listing and they will be discussed in greater detail in subsequent blog posts. The tax management aspects of this list are also reserved for later discussion.
We hope that these options have been helpful to you and give you some food for thought to discuss with your offshore finance consultant.
Thank you.
If you are viewing a summary of this post via email please click below to view the entire post.
Thank you!
Suggest Content
If you are receiving this article via our email newsletter then that means that you are already a member of our Community and may suggest content simply by reply email. If you found this article helpful, please share it by forwarding the email to those who might benefit. Thank you!
If you are not yet a member of our Community or mailing list, please join by clicking the button below. Upon joining, you will also get our Free Guide on the Seven (7) Things To Consider Before Setting Up Your Business in The Philippines.
We look forward to a long-term relationship with you and many thanks in advance.
Market Entry Consult
If you are a foreign investor or foreign business owner who is ready to actively explore the local market, partner with local companies, setup your own local subsidiary, or invest in deals, projects, or enterprises in your specific market sector, then you can request at consult at our Market Entry page.
About the Author
Atty. Noel C. Ducusin is the senior and founding partner of the N. Ducusin & Partners Law Offices - a law firm based in Metropolitan Manila, Republic of the Philippines that specializes in Corporate Advisory, Cross Border Regulatory Matters, Mergers & Acquisitions, and Commercial Litigation.
Atty. Ducusin is also the President & Sole Director of DoingBusinessPH OPC - a company dedicated to empowering foreign investors to do business in the Philippines through online executive education programs, digital books, seminars, as well as online and offline events.
His mission for this Community is to help foreign investors, business owners, and managers by breaking down complex legal concepts and dense technical material into simple, straightforward, and actionable legal information for better business decisions. For easy reading, articles and briefs will be in simple everyday language without legal jargon.
This is not the place for academic writing and legalese will not be tolerated here.
The simpler and the more practical the better.
“Everything should be made as simple as possible, but no simpler.” – Albert Einstein